Are Investors the Smartest and Stupidest People in the World? (Alternate Title: I Should Be Really Careful What I Buy)

The wet market vendors in Taman Tun and SS2 know about pricing. Jumping from one vegetable or meat stall to another won’t get shoppers better prices. The only thing that customers think they are getting out of stall-hopping is a perceived quality advantage and the perceived niceness of their preferred vendors.

Investors and traders, on the other hand, know about arbitrage, and interest rate parity, and carry trades, and options pricing, and bond duration, and how to do long-short positions. And yet the financial system needed bailing out. So why is it that financial markets get so much more regulatory hand-holding than wet markets?

It was in the autumn of 2008 when I visited New York City, ensconced in my holiday mood amid the economic turmoil that was underway in the world at that time. Hank Paulson, the then US Treasury Secretary and ex-Goldman Sachs chief, was hammering out a deal to bail out the US economy and banking system as I took a few moments to snap pictures of the Lehman Brothers building facade while it cratered (the company, not the building). Thus started the very confused era that is still with us today of whether to roll back or expand banking excesses.

A few months later, Bernie Madoff was arrested for having made off with tens of billions of dollars through a Ponzi scheme. I remarked to a friend that it served those investors right for getting duped. Never mind that my friend viewed me callous since there were individuals, charities, schools and university endowments which suffered losses, I think it was very much greed that got them into the mess in the first place.

Not long after the global financial scams, Genneva (remember them?) started selling ‘gold’ to unwitting Malaysian ‘investors’ with the promise of the tune of around 2% interest per month (27% p.a. if you reinvested the interest…).You know something is really wrong when everyone is asking about whether it’s ok to get in on the greatest deal of the century. Houses and life savings became fair game for untold riches.

Anyway, someone tried to disabuse me of the notion that Genneva was scammish because its structure had been adopted before by a foreigner named, wait for it, Charles Ponzi, and she even had the e-mail forwards to prove it! So just to put it out there, the moral of the story is just because it sounds fancy and thought up by a Mat Salleh and endorsed by politicians don’t mean it’s legit (in fact, the bigger the endorsement by politicians, the less legit it probably is).

Dr. M at the Genneva launch circa 2010The latest news is that the perpetrators got away with a fine of RM105,000 for falsifying invoices but they were separately cleared of scamming RM12b. No news about whether any of the reputed 60,000 members got back their gold or investments.

Was it Charles Dickens who penned those immortal words, “the law is an ass”?